France Agribusiness Report Q1 2013

We highlight that French wheat has become more competitive on export markets, mainly owing to a decrease in competitiveness for the Black Sea region. The French livestock sector is encountering more difficulties because of a squeeze in margins. For poultry producer Doux, for example,we expect the asset liquidation and restructuring to increase efficiency in the sector over the long term. In the dairy segment, producers are being hit by weak economic growth in Europe, but milk prices could help to support production growth in the coming years.

Key Forecasts:

- Barley production growth to 2016/17: 6.4% to 9.4mn tonnes. The positive figure is owing to base effects; with barley prices remaining low relative to wheat and intervention buying ending,production is likely to fall in year-on-year terms for most of our 2012-2017 forecast period.

- Milk consumption growth to 2016/17: -3.6% to 5.5mn tonnes. Elevated farmgate milk prices very likely have discouraged consumers from buying milk, especially given the recent period of slow economic growth. We expect this decline in consumption to continue, with more milk being used for other products and
exported rather than being consumed domestically.

- Pork production growth to 2016/17: -2.3% to 1.9mn tonnes. Farmers liquidated part of their herds because of liquidity constraints on the back of high feed prices. Also, the application of EU welfare standards will hurt uncompetitive producers in the short term.

- 2013 real GDP growth: 0.6% (up from -0.2% in 2012).

- Consumer price inflation: 1.4% annual average in 2013 (slightly down from 2.2% in 2012).

A recent French experiment on the effects of genetically modified (GM) foods and pesticides has made anti-GM protesters more vocal on the potential dangers of the crops. The experiment, conducted by biologist Gilles-Eric Séralini from the University of Caen, studied the effect of feeding rats with herbicide-resistant GM corn or corn treated with the herbicide Roundup, on a large scale (200 animals)and over the long term (two years). The results showed that all the groups fed with either GM corn,Roundup-treated corn or both, presented liver or kidney failures after one year (1.3-5.5 times more frequent than for the control group). Also, 80% of males and 70% of females in the tested groups died prematurely. The study noted that there was no degree of proportionality between the doses of GM organisms and herbicides administered to the rats and the effects observed, which is often true when hormonal cycles are disrupted.

Our view that France-based poultry group Doux would avoid bankruptcy has played out well Indeed, the commerce tribunal in Quimper, France, recently organised the takeover of most of the company’s fresh division production sites. The group was placed under compulsory liquidation in June, and the government was put under pressure by syndicates to save as many jobs as possible in the process. Five of Doux’s eight sites have already received offers from French poultry groups LDC, Glon Sanders and Duc. Doux will only keep one of these as part of its continuation plan. The offers will protect about 715 jobs out of the group’s total 1,692. Other parts of the group are still being investigated by the tribunal, and offers were expected to follow in subsequent coming months, with November 30 set as the deadline for negotiations.

French food manufacturer Danone has turned to the Chinese and Indian markets as the EU tightens rules on advertising the health benefits of food, according to Business Week. Asian marketing laws are less restrictive than in Europe, where Danone had to withdraw claims in 2010 that its Actimel probiotic yoghurt boosted the immune system, as this claim was not medically proven. The global market for probiotic foods is predicted to grow 51% by 2016, reaching US$42bn in value, with the Asia-Pacific region worth US$18bn and Western Europe generating US$11bn.
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